The Types of Reports to Submit to Securities Regulators

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• Why It’s Beneficial to Consult With an Attorney

All companies subject to securities regulations must ensure strict compliance. If your business is offering securities or selling securities to the general public, there are very important requirements under federal law, including the Securities Act of 1933 and the Securities Exchange Act of 1934, and state law, including the Ohio Securities Act, that must be followed.

One of the most common mistakes that companies make is failing to submit required reports to securities regulators. If that’s the case, expect to hear from the Securities and Exchange Commission (SEC) and face potential consequences.

“They have a comment process,” says Allison A. Westfall, a corporate finance attorney with Keating Muething & Klekamp in Cincinnati.

“They might say, ‘We reviewed your 10-K or 10-Q. Please explain how you’re complying with X rule.’ Then they give you time to respond back, and we’ll help revise it. But if you’re a repeat offender or it’s a topic where the SEC wants to use you as an example, they may impose a fine or take other enforcement actions.”

“They may bar certain chief executive officers from working with companies in the future or, if they fail to make reports, get fined $1,000 for each day a report is late,” says F. Mark Reuter, also an attorney with Keating Muething & Klekamp. “The SEC isn’t afraid to impose penalties.”

Here are four key reports that public companies are required to file:

1. A Registration Statement

First and foremost, companies that are offering securities are required to submit a registration statement. If you are preparing a public offering, the statement should be prepared and reviewed by an experienced attorney. Even a small error on a securities registration statement could cause very serious problems.

The statement must include a copy of the company’s investment prospectus, a document that provides comprehensive details about the securities offering—from in-depth financial information to projections about future risk and audited financial statements.

2. Quarterly Reports (Form 10-Q)

Using Form 10-Q, companies may be required to provide quarterly reports. This should contain comprehensive financial information, including updates on the business operations. In most cases, a Form 10-Q is not audited.

3. Annual Reports (Form 10-K)

In addition to quarterly reports, companies should use Form 10-K to provide annual reports to securities regulators. In many ways, the contents of an annual report are similar to that of the quarterly reports. Although, in contrast to quarterly reports, annual reports should include independently audited financial statements.

4. Current Reports (Form 8-K)

Finally, some companies may be required to submit a current report, which is done by filing Form 8-K. To be clear, not every business needs to file this form. Instead, SEC only requires Form 8-K to be submitted when there has been a “triggering event.” Some notable examples of triggering events include:

• Offering unregistered securities
• Materially modifying the rights of securities holders
• Amendments to charter and bylaws

Essentially, a report is required when companies engage in activities that may have a direct and significant impact on the rights and interests of securities holders.

“Something the SEC is currently focused on is disclosure of known trends,” Reuter says. “There is a section in periodic reports called Management Discussion and Analysis (MD&A), and the SEC has been encouraging companies to think more about how they should disclose known trends that are impacting the business. That’s something we encourage clients to develop.”

For example, there is evidence that banks and other financial institutions should have seen the crisis coming in 2008, but they did not inform investors about the unsecure nature of their mortgage-backed securities practices.

“They also have hit, recently, on the disclosure of non-GAAP measurements in companies’ earnings releases and periodic reports,” adds Westfall.

“The standard most companies use is Generally Accepted Accounting Principles to disclose financial results, but some make certain adjustments or additions to those measures, and the SEC has taken a really hard stance on the use of non-GAAP recently. If you think a change is more applicable to your company or investors, then you need to disclose it and make a reconciliation with the closest GAAP measurement.”

Why It’s Beneficial to Consult With an Attorney

Securities laws are complex.

“On top of company reporting, there are insiders that have their own reporting for ownership of shares,” Reuter says. “So when they buy or sell securities or get grants for stock options, there’s a whole other reporting regime that’s applicable that companies need to be mindful of.”

“Similarly, if a company is listed on an exchange—say, the OTC market or NASDAQ—there are certain rules on those exchanges and there may be certain reports or notices you have to file to stay listed with them,” Westfall says.

The laws are also constantly evolving, so both attorneys advise consulting with an experienced securities and corporate finance lawyer.

“It’s crucial,” Reuter says, “because the SEC has been coming out with changes nearly every quarter. We’re always following the developments, and it’d be really difficult to keep up with everything on your own.”

Reuter and Westfall sometimes assist clients by drafting reports from scratch, while other times they review what the clients themselves wrote. “We respond to whatever works best for them,” Reuter says.